Can I claim for pre-trading expenses?

How do expenses work?

Whether you’re a sole trader or limited company contractor, you’ll be able to claim back on expenses made for the running of your business, which will then help to reduce your tax bill at the end of each year.

These expenses must be made ‘wholly and exclusively’ for business purposes only.

The type of expenses you are allowed to claim for will depend on how you contract; for example, a limited company contractor will have additional expenses compared to a sole trader due to having certain running costs that only apply to them, and an umbrella company contractor is, in general, unable to claim for expenses due to them being an employee of their umbrella.

There’s also IR35 to take into consideration – if your contract falls inside IR35 then you won’t be entitled to the same benefits (and therefore expenses) as a contractor who falls ‘outside’.

For more information on this, take a look at our What does inside IR35 mean? page.

Typical allowable expenses for a contractor working outside of IR35, include:

• Travel costs – such as fuel, parking, hire charges, train/bus/taxi/airfares and accommodation while away for business reasons.
• Office costs – such as stationery, printer ink/cartridges, postage and phone/mobile/internet bills.
• Clothing expenses – if you require specific protective wear, a uniform or a costume.
• Financial costs – such as hiring an accountant.
• Training courses – but they must be related to your current line of work.
• If you work from home, you may be able to claim a proportion of costs for your heating, electricity, Council tax, mortgage interest/rent and internet/telephone use.

Pre-trading expenses

As a start up, you will no doubt accumulate various costs to get your business up and running; this could include:

• Equipment
• Stock
• Advertising
• Paying rent for your firm’s premises
• Insurance

This will leave many business owners wondering whether or not these count as allowable expenses that can be added to self-assessment when they do eventually start trading.

The general rule for this situation is that you can claim for expenses incurred within a period of seven years prior to trading; and of course, they must be allowable expenses.

Our Limited Company Expenses Guide provides more information on this.

If you need any further information, please call one of our friendly experts on 01442 795 100 or email sophie.lewis@dolanaccountancy.com. Alternatively, contact us via live chat.